The view of Amazon among trade publishers has changed quite a bit over the last 3-4 years, from benign opportunity for growth to a powerful player in the distribution chain that takes pleasure in throwing its weight around. Some publishers (young ones, mostly) think Amazon is the most aggressive company ever to operate in the publishing industry, but older hands know that with market dominance comes brutal trading practices. I remember making a sale calls at Barnes & Noble where the meeting began with the senior B&N executive smiling and saying that he planned to throw all of our books out of his stores. Librarians who complain about Elsevier and John Wiley should see how things look on the other end when you have to do business with the likes of Wal-Mart or Amazon. Welcome to the free market!

However dominant Amazon is for the trade, the fact is that it plays an even bigger role in scholarly book publishing. It has become a significant distributor to libraries and is by far the leading retailer for academic publishers that sell books outside of libraries. I heard a publisher call Amazon the 800-pound gorilla, to which another publisher immediately responded by calling it a 10,000-pound gorilla. I don’t know how big gorillas can get, but you get the idea. In any event, Amazon plays a bigger role in academic book publishing than any other organization.

. . . .

When talking about market share for books, the secondary question is whether the books are print or electronic. That’s counterintuitive; you would think that would be the primary question, but in fact the primary question is where books are purchased: at physical stores or online. Amazon is the leading online bookseller for print books and without question the dominant seller of ebooks, which are also purchased online. Combine the 2 formats and Amazon may have a market share for some categories of books over 50%. And that market share will continue to grow as more and more books are sold in electronic form, since Amazon’s market share for ebooks is even greater than for print. So we should not be surprised to wake up one day to find that Amazon is responsible for the sale of as much as two-thirds of all the books sold outside of libraries in the U.S.

. . . .

A rival to Amazon will be hard to come by. No one really believes that B&N has a chance any more in becoming a potent competitor, and even a combined effort by other retailers is not likely to amount to much. It seems possible to me, though, that pressure on Amazon could come from 3 different directions:

From within the publishing industry

From other large retailers

From the tech industry

Within the publishing industry there is really only one candidate, since B&N is out of the picture. Penguin RandomHouse (PRH), a product of a recent merger, controls about half of the huge bestsellers, which drive consumer publishing. The new entity is bigger than the next 4 trade publishers combined. PRH may be in a position to create its own online bookstore and they may even invite other publishers to put their books on the site as well. This would be a huge direct marketing company, which could indeed chip away at a few points of Amazon’s enormous market share.

. . . .

One way the competition from the tech sector could play out is to choose to torture Amazon in its signature category of bookselling. It’s one thing for a couple of kids in Brooklyn to set up an online bookstore, another thing entirely if an HP or a Xerox decided to use such a service as a showcase for their technologies. And a lot of the pieces are not hard to find. The tools for ecommerce, once very hard to create, are now widely available; print distribution can be handled with agreements with Ingram and Baker & Taylor; devices can be licensed and white-labelled from Korean consumer electronics manufacturers (e.g., LG); ereading apps are available from a number of outfits (e.g., BlueFire). So this raises the question of whether Amazon’s sheer arrogance is now inciting competition.

It’s important for publishers to realize that with the exception of the example of Penguin Random House above, all of these hypothetical challenges to Amazon would be by organizations whose heart really is not in books.

For at least 15 years, a lot of people have tried to make the idea of using the internet as a tool for establishing close relationships between retailers and customers into reality. In fact, PG was working on this about 15 years ago.

Amazon has succeeded building an ecommerce and customer relationship platform that customers love. It’s a combination of a superb user interface, extraordinarily skilled analysis of customer data and a genius logistics system.

The comment in the article about “the tools of ecommerce” being readily available for competitors reflects a lack of understanding about how hard it is to do what Amazon does. Randy Penguin doesn’t have the money or talent to do it. Neither does Apple. (Yes, PG knows Apple sells a bazillion apps and songs each year, but do you really think iTunes is even in the same universe as Amazon’s store?)

Nobody in the publishing business can displace Amazon at this point and probably forever. The intellectual and technical bandwidth is just not there.

Until Amazon begins to make serious mistakes (and it will, but probably not soon), no large tech company can displace Amazon. Walmart might have had a chance to seriously challenge Amazon, but PG thinks that ship sailed about ten years ago without the very smart folks in Bentonville onboard.

What Amazon worries about is some small tech startup that might figure out a new and better way to connect and stay connected with customers – reaching through a smartphone to create a mind meld or something like that. Amazon has some protection because startups have an almost impossible task getting funded if they want to compete with Amazon, but, if you’re looking for a real threat, PG thinks that’s where it will come from.

17 Comments to “Who Can Rival Amazon?”

Showing my age here…I remember back in the 80’s when IBM was still THE tech giant and people worried they were so big no one could ever compete and they would just pick off companies…then Microsoft came along and all the worry was about Microsoft…

Both IBM & Microsoft are still going concerns, of course, but neither has things all their way or is looked to for the next big thing. Amazon is mighty right now and will be for a while, but eventually, someone/thing else will come along. Just as soon as people stop worrying themselves to distraction about Amazon and set their minds to thinking about how to do one or two things better than Amazon. Eat the elephant one bite at a time and all…

Interestingly enough, an interview with Wal-Mart’s head of eCommerce today hit the WSJ in which Wal-Mart promised to “catch up to Amazon” in terms of item selection and delivery ability “within two years.”

So, yeah. In two years, they’ll be where Amazon is now. Where will Amazon be then?

Who can rival Amazon is the wrong question. It’s just the publishing industry indulging in childish wish fulfillment. They dream of a white knight, rushing into save them. Ain’t. Gonna. Happen. Amazon isn’t the publishing industry’s problem. The publishing industry is the publishing industry’s problem.

A much more interesting question to ask is:

How could someone build a business selling books in a world dominated by Amazon?

A full-on frontal assault is a suboptimal strategy, in my view. Much better to stay off the radar as long as possible and build a solid foundation before the giant knows you’re there. Figure out your niche and own it.

Step one is understanding what business you want to be in. The book business is many different types of businesses. I would concentrate on stories because that’s where the most paying customers are (but of course there are other niches if you have specialized expertise).

Step two is understanding how to succeed in business by really trying. You need to think about the overall user experience. Charlie Kindel said it best:

An end-to-end user experience is a cohesive combination of devices, people, brands, channels, services, and content that improves over time.

For me, I see Amazon doing that in retail. I see Apple doing that with the iOS ecosystem. In corporate IT, Microsoft does that. Amazon sells stuff from Apple and Microsoft. Apple has Amazon and Microsoft apps on iOS. Microsoft helps their corporate customers manage Apple devices, write iOS apps, and integrate Amazon’s AWS into the corporate infrastructure. These behemoths regularly get into it over all sorts of issues, but ultimately they know that to provide the best customer experience they have to deal with the other guys.

If you want to build a book business with a constantly improving customer experience, you will have to co-exist with Amazon. That means you can’t make people choose between you and Amazon. In the short run, you will likely help Amazon make money. If you’re not OK with that, you probably should do something else.

Step three is understanding that you aren’t going to beat Amazon by undercutting their prices. Many have tried. None have succeeded and quite a few no longer exist. You must figure out how to provide a service that people will pay for because it offers a better experience than Amazon. And Amazon offers the best experience for reading of anyone.

> may even invite other publishers to put their books on
> the site as well. This would be a huge direct marketing
> company, which could indeed chip away at a few points of
> Amazon’s enormous market share.

Um, yeah, because legacy publishers are sooo good at direct marketing to readers. Didn’t the Big 5 (4…3…) already try this with a little site called Bookish? Which turned out to be a multi-million-dollar flop that didn’t even last a year?

There’s all this advice going around for how to save the publishing industry. Most of it essentially boils down to just two words: “Change stuff!”

The problem is that the publishing industry has never been very good at change. It’s essentially locked into being the way it is by the infrastructure it’s built up over the years. For example, how much wasted money and paper and fuel does the system of stripping or returning books amount to every year? They’ve been doing it for 80 years now, and no other retail industry that I know of works on the same model. But they haven’t exactly been able to get rid of it yet.

It’s all very well to talk about their need to innovate, to create a new ecosystem. But their reaction to innovation so far has by and large been to try to quash it so they wouldn’t have to keep up. And that got them dunned for anti-trust violations.

Wishing that something has to be done because you hate an entity, in this case Amazon, is absurd. Obviously the writer of this blog knows nothing about business. Entrepreneurs don’t start businesses based on vendetta, to kill another business. They start a business to make MONEY! In marketing there is a tool called SWOT. It stands for Strengths, Weaknesses, Opportunities, Threats. Any successful business will go through this analysis when starting a new venture, and the smart businesses will do it on an ongoing basis for their own business. I bet you what, Amazon does this analyses all the time. Let’s analyze Amazon and RuinZon, a new competitor:
Strength Amazon: Size, deep discounts, invented/perfected the e-retail business.
Strength RuinZon: Easy entry in the Internet e-commerce, Soon-to-be-developed secret software, we pray.
Weaknesses Amazon: Easy entry in the Internet e-commerce by other competitors. Hated by Big Pubs and bookstores.
Weaknesses RuinZon: Know nothing about e-retailing. No money, no technology,
Opportunities Amazon: Enters any market that is promising, by direct selling or partnering with other suppliers. Buy new start ups to eliminate competition.
Opportunities RuinZon: The market is big enough for everyone.
Threats Amazon: New competitors. Bezos dies.
Threats RuinZon: Wrong business intentions (not profit).
I’m sure you can add more to all of the above, and it doesn’t mean that entrepreneurs will not start new e-retailing businesses in spite of Amazon size. But the reason has to be profit.

Why would I go to a publisher’s website where the only books available to buy are that publisher’s books? Or even books from a few publishers. Amazon has everything, including used books, out of print books, indie published books, plus everything else they sell.

I’ve seen this point made quite a few times. It’s painfully obvious to me this will never work. Why can’t they see it?

I go to Baen’s Books website to buy their books, and that website contains only books published by Baen’s Books. Some of those are available no where else. I’ve been known to leave snarky emails to the publisher when what I wanted was not available ’cause they were negotiating options with the author.

Still, I take your point. More and more, Amazon becomes my go-to source for my purchases: books, aspirin, vitamins. Still go to ebay for computers.

I buy the Baen monthly bundles.
Have since the last century.
They do everything a publisher site could do and they do it right.
They still had to sign up with Amazon and B&N because those platforms are where the mainstream buyers are.

Amazon angst is meaningless, they are not going away or giving up much market share any time soln: they are entrenched, competent, forward-looking, willing to experiment, and they not only carry the biggest catalog of indie titles, everybody knows they do. No publisher will carry indie content or feature it on equal footing with their offerings which automatically puts their storefront at a disadvantage with a good portion of the consumers.

More, all the publishers’ whining about Amazon only serves to strengthen them in the eyes of consumers:
– “Amazon discounts too much?” “Nobody can match their prices?” Well, no need to even look at competitors if that is true.
– “Amazon has exclusive content no one else can get?” If the competitors make that much of a stink, the exclusive content must be worth a look.
– “Amazon has too big a market share?” Lots of people buy there. And keep coming back. Must be a safe ecosystem to commit to. No risk of them going away.

Even the Price Fix conspiracy did nothing but strengthen Amazon’s hand; not only did it ensure nobody could undercut Amazon on BPH titles while Amazon continued to undercut everybody on everything else, it effectively killed the smaller and creative bookstores (like FictionWise, Books on Board, etc) thereby limiting the value of aggregators like Smashwords, and it transferred their market share to Apple. Along with a good chunk of Nook’s share, apparently.

Getting into the ebook retailing business is easy; prospering while Amazon continues their customer- (and Indie-) friendly policies is going to be increasingly harder.

I’m thinking the company to watch is Microsoft.
They got into bed with B&N because they felt they needed an ebook component to the alresdy robust content offerings to better compete in tablets and phones. They may change their mind. Or they may need to take further action if Nook continues its recent rapid fade.
Does MS give up on having an ebook section in their ecosystem? Do they keep proping up Nook or buy it? Do they launch their own? Or do they reach an accomodation with Amazon?
Microsoft is perfectly willing to play the long game along with Amazon but they are starting from pretty far behind in ebooks. Right now they have a better chance of catching Apple on smartphones than catching Amazon on ebooks. And the former is more important to the latter.
Most of the other non-publishing players being dreamed off as anti-Amazon saviors face similar challenges.

Odds are that for the foreseeable future the only player that can kill Amazon is Amazon.
And that is not looking likely, is it’

Here is a thought: a UK study group wondered about movies. They ran a simulation (with a couple rather dodgy assumptions, mind) and it came out that if the big movie studios got together and became Netflix, charging $15/month to stream every movie ever made, and all new movies when they come out, the studios would make just as much money as they would doing what they are doing now.

The conclusion of the study was that it is not the studios (for us, read publishers) but the middlemen theaters (booksellers) that have the most to fear from a brave new digital world.

This is indeed the model I have always reckoned would be the best way to go for everybody. All the big pubs get together and we readers just subscribe to the library in the sky. Pay a certain amount each month, read whatever we want, and the library keeps track of where we are in any book. The tricky part is always, how much to charge for fees (and how to divvy up the receipts on the back end).

Frankly this $15/month figure seems awfully low to me. But if it is legit for movies that cost $100 mill to produce, $10/month would surely cover all publishers’ revenues.

What fraction of the population did they assume signed up for the service?
$10 a month–$120 per year–is way more than the average person spends on books, e- or p-, especially given the fraction that doesn’t read books at all.